Physical Optics Corporation (POC) proposes to develop a new Soft Computing Hypercompression Interactive Lossless and Lossy (SCHILL, "skill") system for digital clinical imagery - retinal imaging for diabetes, x-ray mammography for breast cancer, CT for lung cancer, and MRI for prostate cancer. SCHILL will be a valuable tool for the National Library of Medicine and medical informatics. POC's SCHILL system will be compatible with security mechanisms and protocols that protect medical imaging data traveling over the Internet. In Phase I, POC completed the preliminary prototype development of a compression engine that demonstrated 10:1 perceptually lossless compression, increasing the bandwidth-distance product of a copper line from 10 to 100 Mbps/km, and successfully performed a series of tests as a clinical imagery evaluation in an engineering setting. In Phase II, POC will develop an optimized SCHILL system that will include interfaces and a video encoder IC card for >20:1 or higher perceptually lossless compression, such remaining elements as the PC workstation and graphics card will be COTS components. In Phase II, a thorough clinical evaluation of the SCHILL system will be performed by The Johns Hopkins University Applied Physics Laboratory, and a network testbed evaluation will be conducted at Broadata Communications, Inc.